Record-high home prices and soaring mortgage rates have put the dream of homeownership out of reach for millions of Americans and made housing a top pocketbook issue in the presidential campaign.

Both presidential candidates offer competing proposals to address the crisis. However, housing experts doubt either plan will fix the problem.

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The affordability problem is severe. Home prices reached a record high in June, hitting a median sale price for all housing types of $426,900, according to the National Association of Realtors. That’s a 4.1% increase from June 2023 and 12 months of price gains, the NAR said.

Construction has also been unable to keep up with demand. The U.S. is short nearly 4 million housing units. Construction in recent years has dipped as high mortgage rates have cooled developers’ desire to build. Construction rates are at their lowest level since the 2008 financial crisis, according to data from Freddie Mac.

Vice President Kamala Harris, the Democratic nominee, proposed a mix of government spending and tax cuts to spur construction while giving first-time home buyers extra cash for a downpayment. 

Former President Donald Trump, the Republican nominee, pledged to reduce demand by deporting illegal immigrants and reducing red tape to lower burdens on housing developers. 

The problem, housing experts say, is that both plans are unworkable.

“The Harris plan offers more detail but is unrealistic, and the Trump plan has very little detail and is not very serious,” said Cliff Rossi, who held risk management positions at Freddie Mac and Fannie Mae.

Spurring construction

Ms. Harris’ plan largely focuses on the supply side of the problem. She has vowed to work with private sector home builders to construct 3 million homes over the next four years. The Harris campaign said she would achieve this goal with a $40 billion innovation fund, which would offer tax credits to make projects more economically feasible for developers. The theory is that it would fuel a construction spree and close the housing gap.

The innovation fund would need congressional approval, which is not a guarantee. President Biden proposed a slimmer $20 billion innovation fund that went nowhere with the current Congress.

Mr. Rossi called the plan ambitious, noting that in the years before the housing bubble burst in 2008, developers were averaging about 1.6 homes per year. Builders fell well short of the 3 million goal last year, with only 1.4 million housing projects started — a 9% decline from 2022, according to data from the Structural Building Components. 

Analysts say the largest barrier to home construction isn’t developers’ desire to build but rather onerous zoning laws and heavy regulations that can tie up projects for years. Housing developments also need infrastructure like water, sewer and roads, which can also delay construction.

“It’s one thing to create tax incentives to build homes, but the challenge is that they would need to take on local land use regulations, and that is not really the jurisdiction of the federal government,” said Casey Dawkins, who teaches Urban Studies and planning at the University of Maryland. 

To streamline the process, Ms. Harris proposed incentives to local communities, such as withholding federal highway funding if municipalities don’t wave onerous restrictions. 

Mr. Trump proposed targeting local regulations but hasn’t specified which types or how he would get municipalities to bend to his will. But he’s also signaled support for more restrictive zoning in suburban communities to prevent multi-family homes or condos from being built in single-family areas. Mr. Trump has not detailed how he would achieve either of these goals.

Down payment assistance

On the demand side, Ms. Harris has promised to give $25,000 in downpayment assistance for first-time home buyers and more generous support for first-generation homeowners. The Harris campaign said the proposal would put 1 million first-buyers in a new home annually. 

She did not detail how the plan would work. It is unclear who would be eligible or whether the money would be given to buyers upfront or as a delayed tax credit.

Experts worry that arming buyers with extra cash while there is already a limited housing supply would increase competition, pushing prices higher.

“This might create some inflationary pressure on housing, so it might be counterproductive,” said Michael Bader, who teaches housing policy at Johns Hopkins University.

Mr. Rossi, the Freddie Mac and Fannie Mae veteran, said handing out cash to individuals who may not have the income to meet current sky-high mortgage rates and home prices could backfire. He noted parallels to the 2008 financial crisis when the delinquency rate was a record 9.2% because people purchased homes out of their price range.

“You don’t want to give people $25,000 and have them default on their mortgage later on, and that’s exactly what we are going to see. We saw that in the run-up to 2008 when we pushed to get people into the homes that didn’t have the equity to stay in their homes,” he said.

Mr. Bader said guardrails were put in place since 2008 and that even with the $25,0000 assistance, buyers would have to meet more stringent requirements to purchase a home than before the financial crisis.

Building on federal lands

There is one area in which Ms. Harris and Mr. Trump agree about solving the housing shortage: Selling surplus federal land to developers. It’s a concept that found its way into both Ms. Harris’ housing plan and the Republican National Committee’s 2024 platform.

Under the proposal, the federal government, which owns roughly 28% of the land in the country, would be opened up for bidding. Developers who bid on the parcel must promise to keep a certain percentage of the units affordable for the local population. 

However, lots of federal land is unsuitable for residential construction. Many of the areas where the government owns the most land, particularly out west, are far away from areas with the biggest housing needs. Plus, those areas often lack basic infrastructure, such as water and sewers.

“I’m skeptical of this idea,” said Mr. Dawkins. “Federal land near major urban areas is pretty scarce. You aren’t going to open up Yosemite Park and build a 1,0000-home subdivision, and water supply is limited in some of these areas. It doesn’t alleviate the shortage of housing in more urban areas.”

Previous efforts by the federal government to sell off federal lands have been tied up in litigation. A plan to sell land owned by the Department of Veterans Affairs to build 1,200 affordable units in West Los Angeles has been mired in lawsuits amid residents from the wealthy residents of the Brentwood area surrounding it. The litigation is ongoing.

Immigration

Mr. Trump promised to lower housing costs by deporting illegal immigrants, who he says are fueling high demand and driving up prices.

“We also cannot ignore the impact that the flood of the 21 million illegal aliens has on driving up housing costs,” he said earlier this month at the Economic Club of New York.

Research is mixed on whether immigration has a major impact on home prices. A 2017 paper published in the Journal of Housing Economics concluded that the immigration wave of roughly 1% of the area’s population results in a 0.8% increase in rents. A Congressional Budget Office analysis of the economic impact of the immigration surge under Mr. Biden concluded it pushed prices north by increasing the demand for housing.

Housing experts are skeptical that deporting illegal immigrants will do much to impact the housing market.

“This is a problem that has been around for a long time before the immigration issue started to ramp up in a big way,” Mr. Rossi said. “It’s a housing supply issue fueled by a bad series of events like the pandemic and the cost of building materials going up.”

Mr. Dawkins said mass deportations may be counterproductive because it would reduce the labor pool available to build new homes and apartment buildings.

“Restricting immigration would affect the supply side pretty severely because we rely on foreign workers,” he said. “If you eliminate those workers, you are going to increase the cost of construction, which would have a bigger impact on the demand side.”

Interest rates

Mr. Trump has also repeatedly pledged to fix the housing crisis by lowering borrowing costs, but presidents have little impact on mortgage rates. The Federal Reserve sets policy rates independently from the White House.

During his administration, Mr. Trump repeatedly pressed the Fed to lower interest rates, but those requests were ignored. He also weighed firing Fed Chair Jerome Powell, but it was unclear whether he had the authority to do it.

Even without presidential nagging, the Fed last week lowered a key interest rate by half a percentage point to counter a slowing economy.